First Metro Asset Management Inc

Going overbored by Gus Cosio

The beginning of the year has indeed brought a lot of enthusiasm to Philippine stocks with the global wave flowing into emerging markets.  These past few weeks have seen the Philippine Stock Exchange index (PSEi) with its strongest performance in many months.  Large capitalization stock have dominated trading all along with the exception of a recent mining favorites NI and ORE.

At quick glance, one would be led to believe that some issues have gone up too fast.  These would be Ayala stocks AC, ALI, MWC and GLO.  Actually, except for ALI, these were laggard stocks from 4Q-2011, so in fact, they are just doing a catch up.  Even banking stocks BPI, BDO and MBT are merely recovering from the price levels seen in the middle of 2011, just before the U.S. credit downgrade and the fear of banking contagion in Europe.

A few questions arise given that people appear wary of today’s higher prices.  I would just like to remind everyone that stock prices are forward looking, and if an investor or trader keeps looking back, he or she will be overcome with inertia and will eventually end up chasing very high prices.  Looking at end of 1Q-2012 scenario, I think  most index stocks prices will hold.  I anticipate that 4Q-2011 earnings which would be reported in the coming weeks will provide some assurance that the momentum of business will carry on past 1Q-2012.  Some of these questions are should property stocks be avoided or will the power generating stocks bounce back to life or will PGOLD stock price keep on going or will the price of NI and ORE start to collapse.

Well, I do not claim to be a predictor of prices, and you may have noticed that I am not very keen at sharing target prices.  I normally share my ideas on what values should be hoping that the prices of the stocks I follow would eventually approximate their intrinsic values.  A question that is easy enough to answer is will the prie of ORE contiue to be strong.  I certainly think so because based on available information, the company will be reaching profit expectations for 2011.  The 2012 earnings expectations will probably be raised by analysts leading to favorable valuation for the stock.  On NI, the story seems to be similar to that of LC/B where production is still limited , but the mineral resource level is enormous.  Thus, in as far as NI is concerned, investors and traders will trade this stock based on expectations of metal prices.  Given the recovery in gold and nickel prices, we should be seeing some follow through activity on NI although the prudent thing to do is to buy the stock on dips.  As for LC/B and MA/B, I think the current strength of gold prices will encourage further accumulation of these two related stocks as well as the steady gold producer PX.  For recently active mining stocks MARC and APX, I think they may be worth a look because at the end of the day, what really counts in trading mining stocks is the mineral resource being valued in the stock price.

With power stocks, the sector has been in the doldrums for a while and has lagged this rally pretty much.  EDC and FGEN recovered from recent lows, but I sense a lot of wariness in the sector as generating capacity seems to be in equilibrium at present leaving very little room for windfall earnings seen in 2010.  The only bright prospect is the return to profitability of EDC should the much awaited Bacman plant gets ramped up to it rated capacity.  AP looks to me that it will not be going anywhere in the near term.

I reckon second line banking stocks PNB and SECB can provide some excitement.  PNB is much closer to its merger with Allied while SECB recently acquired Premier Savings which will expand it reach to the consumer sector.  While RCB may be looking cheap, I sense that it is being relegated to the segment of permanently low PE stocks.  as for MBT, BPI and BDO, I think they will continue to track the index.

TEL had been quite strong since the start of the year but has recently pulled back.  I am sure the pull back was a result of arbitrage selling arising from the conversion of DGTL into TEL at the exchange price of 1.60 and 2500.  When the supply overhang gets bought, TEL should be headed for 2900, at which level the dividend yield is still above 6% – a yield which is over 100 basis points above 10 year Philippine government bond yield.  Remember, PLDT is also listed in New York , and in comparison to U.S. treasuries, the dividend yield is over well 400 basis points above 10 year U.S. government bonds.  No wonder there is a lot of foreign buying of TEL.

Actually, I am hoping that stock prices pull back some more.  I would like to see lower prices for all stocks mentioned here because I am a buyer of most of them.  To existing holders and potential buyers of PGOLD, any dip on its price should be a good opportunity to get more of this stock.  In 1012, the consumer will be king in the Philippines; gamblers will also roam the boulevards.

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First Metro Asset Management Inc